At a recent holiday party I told a younger friend that we seem to have weathered Phase I (the potential financial system collapse), and will eventually make our way through Phase II (a long and deep recession), but that Phase III (the end of America's ability to be an in individual and collective debtor nation) will take twenty years. The prospect of a lifetime of economic doldrums ended the conversation... and left me to seek some sources of optimism.
1. This is not the end of Western Civilization. We will cede a portion of our global financial leadership and be forced to live within our means - the Middle Class will have to give up it's SUVs, McMansions, and the place at the beach; the dollar's preeminent role in international finance will be modified - but, we do work harder than most of the world, enjoy an abundance of natural resources, and have long-demonstrated a combination of common sense and adaptability. The current jobs-creation scheme notwithstanding, we do have a solid transportation and energy infrastructure. What we have lost is much of the manufacturing base; perhaps a declining dollar will re-balance trade and some of the students who would have been targeting Wall Street will shift their majors to science and engineering. That will take a long time.
2. In the shorter term, another several months of housing price declines and low mortgage rates should bring stability in 2009 - and anybody with a downpayment and an income will be able to buy in after the 5% or so who Barney Frank got into the American Dream go through their foreclosures. Painful, but necessary. In the meantime, the consumer's saving rate has reached almost 3% and core inflation is under 2% - both good numbers, for the 93% who have jobs.
So, my hopes for 2009:
1. The crowd that Obama is assembling perform as well as their resumes suggest. (In my youth, I worked in the Nixon administration. Many civil servant friends commented about how much more impressive the lower-level Kennedy appointments had been than the Johnson or Nixon versions. Perhaps this will be a reprise.) While I agree with most of the Bush policy direction, he has certainly not been well served by the likes of Rumsfeld at Defense, Gonzales at Justice, Cox at the SEC, and Brownie of Katrina fame.
2. Ben Bernanke is wise and courageous enough to take the punch bowl away before the massive expansion of the money supply and the trillion dollar stimulus package lead to hyperinflation. Congress and the political forces are unlikely to provide fiscal discipline, so Bernanke will need to provide monetary discipline by raising rates and shrinking the money supply at about the time that his term expires in early 2010.
3. All of the scoundrels get flushed out of the financial and political systems. The damage done by Bernie Madoff and the IndyMac Bank fraud compound the terrible management decisions leading to the banking crisis, and all of the perps need to go. The voters took care of William Jefferson in Louisiana (D) and Ted Stevens (R) in Alaska, and the federal attorney (unless he gets fired) will take care of Rod Blagojovich (D) in Illinois - the test will be whether the Democrats leave Charlie Rangel as chair of the House Ways and Means Committee. The audacity of hope.
4. More specifically, I'd like to see a sensible energy policy which acknowledges global warming, but which contains a cost/benefit analysis of changes to the human-caused portion, and which includes a significant nuclear element. If there is a risk to our children's financial future, it is that environmental zealots will mandate the destruction of coal (50% of our electrical power today) in favor of limited-application "alternative energy" technologies. And, most importantly
5. Peace on earth and good will toward men (and women).
This week's You Tube is brought to us compliments of Herb McClannan, who shows a real concern for the unfortunate during this holiday season.
Bill Bowen - 12/26/2008